Kemp: Russia And China Ready For Deal On Energy

"For Russia, implementing these agreements means diversifying gas supply destinations, while for our Chinese partners ... it could be a remedy for energy shortage and ecological problems," the Russian president said.

Energy Geography

Even without the crisis over Ukraine, Russia has been depending too heavily on oil and gas exports to Europe, leaving it vulnerable to pricing disputes with customers, pipeline disputes with transit countries, falling European demand and shifts in European energy policy.

Europe accounted for 80 percent of Russian oil exports in 2012, while just 18 percent went to Asia, according to the U.S. Energy Information Administration. Most of Russia's gas exports went to European countries in 2012, with just 19 percent delivered to Turkey. ("Russia country analysis brief" March 2014)

Relying so heavily on customers in Europe makes no sense strategically or commercially. Just as consumers need a diverse source of suppliers, producers need the security that comes from having multiple customers.

Russia continues to export almost all of its oil and gas from east to west through pipelines built in the 1960s and 1970s at the height of the Cold War, even though the predominant flow of energy in the world economy is now from west to east as a result of the industrialisation of Asia and the shale revolution in North America.

Given Russia's strategic location between Europe and Asia, the two major energy-importing regions in the 21st century, there is a strong strategic case for it to develop a more balanced approach, increasing the proportion of oil and gas that it exports to fast-growing markets in Asia.

Building new pipelines or gas liquefaction facilities to take Russian gas east to China will be enormously expensive. By contrast, the costs of building pipelines to Europe has already been sunk and long paid back.


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